deadline is absolute all files must be under 30%

Individual Project Phase 3

Colorado Technical University

Instructor:

09/08/2014

Kenya is country located in eastern Africa and has a population of approximately forty five million people. Kenya borders some countries like Tanzania, Uganda, Ethiopia, Somalia and Sudan. Kenya has a vast coastal region which hosts the port of Mombasa which acts as a connection of east Africa to world. This is due to fact that a lot of import pass through this port to other parts of the east Africa region. The capital city of Kenya which is Nairobi hosts international organizations like the UN and AFRICAN UNION Kenya has taken English and Kiswahili as its formal language though it has forty two tribes

.Kenya has a climate that varies from the tropical climate in coast to the semi-arid in the northern Kenya. In central Kenya, there are fertile highlands which enjoy ample rainfall and they are well known for producing the best tea in the world. Also they produce best coffee which is exported to other parts of the world including UK and USA. Also in the rift valley region there is high production of maize which is consumed locally and also produces tea in some region.

The port in the coastal Kenya provides a constant flow of income and employment to many due to the fact that it serves many landlocked countries in this region. In recent years Kenya has witnessed a great improvement in foreign direct investment with its new vision 2030, Kenyan government hopes to reach the global competitiveness and manage to attract more foreign investors.

Most of the foreign direct investments in Kenya are from the UK, Germany, India, USA and currently china who has dominated the construction sector. Most of these investors have concentrated in horticulture, floriculture and the textile industries. The telecommunication sector has not been left behind  with the former Telkom Kenya being taken over by a multinational company by the name Orange .the ever booming tourism sector has also attracted many investors

The major reason that has made these investors to highly concentrate in horticulture industry is the ready and available low cost labor and also high level of education which has come hand to hand. Also this apply to the construction industry which has managed to employ many skilled and unskilled laborious.

The peaceful political atmosphere has also contributed too many foreign investors investing in Kenya. The government has heavily invested in development of infrastructure has managed to attract prominent construction companies like china corporation investing in Kenya. The newly flagged standard railway gauge has played a major role in attracting foreign direct investors. The availability of export processing zones which is a hub of foreign investors has seen development of textile industry which has created employment for many people.

The government of Kenya has placed laws that govern the foreign direct investment so as to protect the local companies from being wiped out by the mergers and foreign investment. Also this law has also catered for these investors so as to generate revenue and increase competition lending to better goods and services.

The government should create policies that evaluate the impact of foreign direct investments benefits and cost to the stakeholders. This evaluation should include the economic impact for the host country in terms of growth and balance of trade. The other key thing the government should evaluate is the political and legal impact of the foreign direct investors.

The Kenyan government has employed several policy instruments to promote foreign direct investments rise because the characteristics associated with it. FDI increasingly fit objective development (economic growth, minimizing poverty level etc.). This is based on positive potential effects of FDI (mobile technology, growth, improved skills, capital inflows). Kenya has devised the following in promoting foreign direct investments in terms of incentives to the investors, exemption from stamp duty, exemption from VAT, operation on one license only no restriction on management or technical arrangements, exemptions from import duties on, raw materials and intermediate inputs and exemption from all withholding taxes on dividends and other payment to non-residents during the first 10 years.

There also special incentives available in Kenya for investors. Among them is investment promotion incentives, which determine physical and financial capital. They can be further classified into incentives of a financial nature and those that stimulate physical investments which include investment tax credit and allowances. Here companies in a particular industry are generally allowed to make deductions against their liabilities of tax, a percentage of expenditures on additional to physical capital stock. It involves; tax incentives whereby there is provision of investment allowance catered as incentives for investment in the manufacturing and hotel sectors at 100% rate. And also manufacturers under bond are applied. Capital expenditures is expanded to cover a section of infrastructure and environmental protection equipment.

The other one is export promotional programs. Duty remission facility-raw materials meant for production of export goods or to be sold domestically are subjected to this. This program is facilities by the investment promotion Centre and administered by the Kenya investment authority. Also export processing zones programs (EPZA)-established by parliament act to regulate, facilitate and promote export oriented investments.  It achieves by creating jobs, increased skills, diversification and others. Currently Kenya is part of regional integration in east Africa. It is working closely with neighboring countries like Uganda, Tanzania and DRC Congo to achieve peace, stability and wealth in a written agreement.

There are several Advantages of FDI. First trade gains-goods obtain strong substitutes, regional trade agreements causing the demand for third party to go down. Secondly increased returns and increased competition-tradeoffs are revoked making it possible for free interaction market. It gives extensive sales with minimal cost. Thirdly investment- regional trade agreement attracts FDI from the both within and outside resulting to big market and production rationalization. Fourthly coordination and bargaining power-negotiations are based on give and take approach which makes tradeoffs easier and possible. Finally security-due to positive interdependency it results to build of trust and reduce conflict among trade countries.

The disadvantages of FDI include poor infrastructure-goods do not get to the market because of lack of proper roads thus low supply to the member country. Also the lack of common currency acts as draw back to the integrated region thus discourages common market. Another major disadvantage is language barrier-the region is occupied by different communities with different language group. Due to high rate of illiteracy there is no smooth trade. Finally the region is under developing nations and does not have enough capital to invest for common market and is affected by high percentage of poverty.

Reference

Farole, Thomas& Deborah Winkler (2014) Making Foreign Direct Investment Work for Sub-Saharan Africa: World Bank Publications.

Weigel, Dale R (1997) Foreign Direct Investment, World Bank publication